Kinetik Holdings Inc. Q3 FY2024 earnings call

• Kinetik had its single best quarter as a public company in terms of adjusted EBITDA, up 23% YOY, with processed gas volumes at 1.71 billion cubic feet per day, a 15% YOY growth.
• Partnered with Diamondback Energy to increase ownership in EPIC Crude to 27.5%, with Diamondback committing ~33% of EPIC Crude's capacity. Kinetik is finalizing a long-term transport agreement with EPIC.
• Received MRV Plan approval from the EPA for CO2 sequestration at Maljamar and Dagger Draw facilities, enabling economic benefit from 45Q credits.
• Progress on capital projects: build-out for Lea County MVC step-up and treating services complete; Kings Landing Cryo I on track for Q2 2025 in-service; new pipeline to connect Eddy County, NM to Culberson County, TX expected in Q1 2026.
• Revised adjusted EBITDA guidance to $970 million to $1 billion, with tightened capital expenditures guidance to $270 million to $290 million.
• Board raised quarterly cash dividend to $3.12 annualized.

The Midstream Logistics segment generated an adjusted EBITDA of $174 million in the third quarter, up 24% year-over-year, largely driven by full quarter contributions from New Mexico assets and strong performance across Texas assets. The Pipeline Transportation segment generated an adjusted EBITDA of $96 million, up 22% year-over-year, driven by contributions from the PHP expansion, Delaware Link, and increased ownership in Epic Crude. Midstream Logistics' adjusted EBITDA was 65.4% of total adjusted EBITDA for the quarter, while Pipeline Transportation's was 34.6%.

• 2024 adjusted EBITDA guidance revised to $970M-$1B, a 3% increase at midpoint vs previous, with year-over-year growth approaching 20%.
• Capital expenditures guidance tightened to $270M-$290M for full year 2024.
• 75% hedged on remaining 2024 expected gross profit and ~65% hedged for 2025.
• Kings Landing Cryo I expected to commence operations in Q2 2025; new Eddy to Culberson County pipeline expected in Q1 2026.

• Potential misinformation regarding New Mexico setback rules, but management believes no significant impact as it's a legislative study with no immediate path to impactful legislation.

Q: How should we think about GMP fees related to sour gas treating, CO2 treating, and sequestration and their impact on competing for upcoming acreage dedications?

A: Jamie Welch explained there's a material difference between average gross fees on the southern end vs. Delaware North, with a stair-step increase in margins for more sour gas services, including use of acid gas injection wells providing incremental margin.

Q: What factors drove the outperformance this quarter and sustainability into 2025?

A: Jamie Welch cited factors like exceptional performance of cryos after molsieve bed changes, benefits from PHP expansion, positive spreads, and optimization of space by the commercial and operations teams, with sustainability due to ongoing optimization and risk diversification.

Q: Optionality of the pipeline connector and future connectivity impacts?

A: Jackie Koletas was told the Eddy County to Culberson County pipeline connector can be expanded beyond 150 Mcf/day with additional boost compression, creating connectivity for customers and positioning Kinetik for a super system with flexibility for optimization.

Q: View on commodity price environment for Q4 2024 and 2025, and return of Alpine High volumes?

A: Jamie Welch noted Waha Hub prices were negative in Q3, but December prices are positive, sufficient to return Alpine High volumes, with the basin tight and Waha likely to remain challenged, benefiting integrated NGL players.

Q: Thoughts on New Mexico setback rules and impact on Durango assets?

A: Jamie Welch stated it's a legislative study with no path to impactful legislation, as New Mexico lacks mechanisms for setback constitution changes and Democratic leadership won't support such legislation.

Q: Dividend growth given 2025 as higher CapEx year?

A: Jamie Welch mentioned capital allocation will be balanced with annual ratable dividend growth, continuing on a thoughtful, methodical basis.